A third consecutive month of higher-than-expected inflation data dealt a double-barreled blow to Joe Biden’s political prospects ahead of November’s election, exacerbating concerns voters could punish him over high prices and delaying hopes for Federal Reserve rate cuts the president has predicted.
Biden hoped to sell voters on post-pandemic economic stabilization, with easing price pressures and a still robust job market. But the president acknowledged after Wednesday’s report – which saw the consumer price index excluding food and energy costs increase 3.8% over the past year – that inflation was still stretching family pocketbooks thin.
“Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago,” Biden said in a statement.
Moreover, it’s getting harder to envision the Fed delivering on rate cuts before the election, a move that would add more juice to the stock market and make it easier for Americans to buy houses and cars and service their debts.
Treasury two-year yields surged while major groups in the S&P 500 retreated, signaling investor skepticism that the Fed will move in June. But if the Fed can’t cut by July, it’s following meeting comes in September.
At that point some economists believe the Federal Open Market Committee, the bank’s rate-setting panel, would wait until after the election to cut in order to avoid any appearance of trying to influence the outcome.
“One of Chair Powell’s responsibilities is to protect the public standing of the Fed,” said Vincent Reinhart, chief economist at Dreyfus and Mellon. “The closer the FOMC acts to the election, the more likely it is that the public will question the Fed’s intent.”
That’s bad news for Biden, whose reelection relies on invigorating suburban swing voters who have seen the prices of mortgages balloon over his tenure. The president has repeatedly offered the hopeful prediction in recent weeks that the Fed would cut rates while holding events designed to highlight his administration’s proposals to tackle rising housing costs.
Biden can ill-afford Americans souring further on their economic outlook, as he continues to trail former President Donald Trump in reelection polls. Despite robust employment throughout Biden’s tenure – including the addition of more than 300,000 new jobs in March – corresponding inflation has fanned angst among the electorate.
Voters said their personal financial situation was better off under Trump by a 16-point margin in last month’s Bloomberg News/Morning Consult poll of swing states. More than a third of voters said the economy was the single most important issue to them, while less than a third said the economy was on the right track.
Trump sought to push that advantage Wednesday morning in a post to his Truth Social platform.
“INFLATION is BACK—and RAGING! The Fed will never be able to credibly lower interest rates, because they want to protect the worst President in the history of the Untied States!,” Trump said.
Meanwhile, Trump’s MAGA Inc. super political action committee blasted out an email with the subject line, “Biden’s Inflation Crisis.”
The story on prices has drastically improved since June 2022, when CPI inflation peaked at 9.1%. In addition, pay increases are helping many Americans stay ahead of price rises, with median wages rising 5% in the year through February, according to the Atlanta Fed’s Wage Growth Tracker.
James Knightley, chief international economist at ING, though, pointed to other aspects that bode poorly for Biden. Last year, the cost of living adjustment for federal benefits like Social Security was 8.7%, helping to blunt inflation for retirees. This year it’s 3.2%. And the jobs market is showing signs of slowing, he said.
“The leading indicators for employment are not looking good,” he said. “If unemployment starts to creep up, as well, with inflation remaining elevated, that’s a real toxic combination for Biden.”
While Biden acknowledged his administration had “more to do to lower costs,” the White House also signaled plans to use persistent inflation as a political cudgel.
The president has proposed a $10,000 tax credit for first-time homebuyers, as well as a matching credit for families who sell affordable housing, in hopes of reinvigorating the market for starter homes. Democrats hope to use that proposal as a contrast to Republican plans to extend tax breaks for the wealthy and corporations as the battle over the tax code heats up in the coming year, with Trump’s signature tax cuts slated to expire.
And aides hope the effort can have particular resonance among young and Latino voters – two groups that helped elect Biden in 2020, but where his support has eroded in recent years. Biden touted the proposal in an interview with Univision that aired Tuesday night.
“If you’re buying your first home and or you’re moving up from a small home to a larger home, we provide for the ability for you to essentially get a $10,000 payment to buy the first home and or to move to another home because of interest rates and the like,” Biden said.
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